Archive for the ‘The 1% and the 99%’ Category

Thomas Frank is one of my favorite writers. I like his books. I like his magazine articles. I enjoy watching videos of his speeches and interviews. But there is one thing he doesn’t quite get.

His basic idea is that the Democratic Party is losing because it has abandoned the American working class and the policies of Franklin D. Roosevelt’s New Deal. The leaves them vulnerable to the fake populism of Donald Trump and the right wing of the Republican Party.

Democrats rely on African-Americans, Hispanics and educated professionals of all races reacting against President Trump’s appeal to prejudice against African-Americans and immigrants.

That’s not enough, Frank writes. Democrats need to stand up for working people of all races—provide free college tuition and Medicare for all, enforce the anti-trust laws and renegotiate NAFTA and other pro-corporate trade treaties.

All this is true and important.

Frank’s mistake is to think that the reason top Democrats are pro-corporate is that they fail to understand their situation.

Shortly after the 36th minute in the video above. he says that the reason the Clintons and their allies have abandoned American labor is that the signature achievement of their generation was to their successful revolt against the New Deal, and nobody will disavow their generation’s signature achievement.

If they really don’t understand, it is because, as Upton Sinclair once put it, “it is hard to make a man understand something when his salary depends on his not understanding it.”

The wealth and power of the Clintons, like that of the Obamas, is based on their allegiance to Wall Street and the corporate elite. If they had advocated breaking up the “too big to fail” banks or prosecuting financial fraud, they wouldn’t get six-figure lecture fees from bankers and hedge fund managers.

On a lower levels of government, there is the revolving door between Congress and regulatory agencies on the one hand and Washington lobbyists, law firms and regulated industries on the others. Neil Barofsky, whose job was oversight of the TARP bailout program, was warned that if he did his job too zealously, he would lose the chance of a good post-government job. He’s not the only one.

The Democratic Congressional Campaign Committee supports a whole ecology of fund-raisers, pollsters, media specialists and campaign consultants who depend on a system whereby candidates concentrate on raising money and spending it on designated funds.

So it’s not just a matter of waking up to what’s really going on. It’s a matter of people knowing which side their bread is buttered on. Or, as the Japanese might say, nobody willingly lets their rice bowl be broken.

Futurist Douglas Rushkoff was offered half a year’s salary to give a talk on the future of technology. To his surprise, he found his audience consisted of five persons from “the upper echelon of the hedge fund world.” Their real interest was in Rushkoff’s thoughts on how to survive the coming collapse of civilization.

The CEO of a brokerage house explained that he had nearly completed building his own underground bunker system and asked, “How do I maintain authority over my security force after the event?”

For all their wealth and power, they don’t believe they can affect the future. The Event. That was their euphemism for the environmental collapse, social unrest, nuclear explosion, unstoppable virus, or Mr. Robot hack that takes everything down.

This single question occupied us for the rest of the hour. They knew armed guards would be required to protect their compounds from the angry mobs. But how would they pay the guards once money was worthless? What would stop the guards from choosing their own leader?

The billionaires considered using special combination locks on the food supply that only they knew. Or making guards wear disciplinary collars of some kind in return for their survival. Or maybe building robots to serve as guards and workers — if that technology could be developed in time.

Remember the Panama Papers? That was a massive leak of documents from a Panama-based law firm called Mossack Fonsecka, revealing how the world’s richest and most powerful people hid billions of collars in investments from tax collectors and the public.

Now there is another big leak—called the Paradise Papers—from century-old Bermuda-based law firm called Appleby and its Singapore affiliate.

Like the Panama Papers, the anonymous leaker sent documents to a German newspaper called Süeddeutsche Zeitung, which teamed up with the International Consortium of Investigative Journalists, the Organized Crime and Corruption Reporting Project and some of the world’s other top newspapers, and spent a year going through 13.4 million files.

Some of the highlights of what was found:

Queen Elizabeth II’s investment manager, the Duchy of Lancaster, invested millions of pounds in a Cayman Islands fund, whose investments included Bright House, a rent-to-own UK furniture company that charged interest rates of up to 99%

Secretary of Commerce Wilbur Ross, who divested himself of ownership in 80 companies to avoid conflicts of interest, kept interests in nine offshore companies. Four of them invested in a shipping company called Navigator Holdings, which did business with a Russian energy and chemical company called Sibur, whose key owners include Vladimir Putin’s son-in-law and a Russian oligarch under U.S. sanctions.

Stephen Bronfman, a key fund-raiser for Canadian Prime Minister Justin Trudeau, teamed up with key Liberal Party figures to evade Canadian, U.S. and Isreali taxes.

Major companies shown to do business through tax havens are Apple, Nike, Uber Barclay’s Bank, Goldman Sachs, BNP Paribas and Glencore, the world’s largest commodity trader.

None of this is, in itself, illegal. But hidden offshore investments provide a way for criminals to launder money and for individuals, companies and governments to evade economic sanctions by the U.S. and other governments.

As several people have remarked, the worst scandals are not how the law is broken, but what can be done that is perfectly legal.

For what it’s worth, I don’t think any of this is evidence that the Russian government or Russian interests manipulated the 2016 elections in favor of Donald Trump,

Democracy means rule of the people. But the Gilens-Page study of 1779 legislative initiatives in 1981-2002 showed that chances of success were strongly correlated with the desires of the affluent, but not at all with average citizens.

For example, polls show a majority of Americans want Wall Street banks to be brought under control, according to Martin Gilens, a co-author of the study. They want a higher minimum wage, better unemployment benefits and more spending on education. On the other hand, they are less supportive of abortion rights and gay marriage than the economic elite. But the political system follows the economic elite, not them.

In other words, the United States is a democracy in that we have freedom of speech and contested elections, but in terms of outcomes, we are an oligarchy, ruled by the rich.

This is not an accident, a matter of how things happen to play out. It is the result of a deliberate campaign that has been going on for decades. It is not something that began with Donald Trump and it will not end when he is out of office.

The anti-democratic movement has three elements:
• Use the power of money to dominate political discourse.
• Use the power of money to dominate politics and government
• Restrict the right to vote and other democratic rights..

I recently read a good book, DARING DEMOCRACYby Frances Moore Lappé, author of Diet for a Small Planet, and a young friend, Adam Eichen, that ties all this together.

I do have a few reservations about it, particularly the fact that they let Democrats off too nightly, which I’ll get to at the end. But I’ll first summarize their main contentions.

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The famous Powell Memo—written in1971 by future Supreme Court Justice Lewis Powell to the U.S. Chamber of Commerce—called on U.S. business to mobilize to counteract anti-business sentiment in the news media and the educational system.

Right-wing billionaires responded by funding the Heritage Foundation and other right-wing think tanks.

They of course have a perfect right to present their point of view. The problem was that these organizations are dedicated to political warfare, and get to be treated as equivalent to groups who, whatever their unconscious biases, are serious scholars and researchers..

When I was a newspaper reporter, and had to write about something I didn’t know much about, the first thing I’d do was phone experts on various sides of the issue.

When I phoned the Brookings Institution, the person I’d reach would give me a carefully worded opinion, quoting sources and taking into account arguments on both sides.

When I phoned the Heritage Foundation, I’d talk to some young guy who had talking points down pat, but couldn’t back them up. Yet by the rules of my game, I had to treat them as equal authorities.

The Cato Institute, funded by the Koch brothers, consisted of sincere libertarians, who sometimes came down on the side of peace and civil liberties. But when their views closed with corporate interests, the Koch brothers purged the staff.

I’ve posted many charts about the growing concentration of income and wealth in the United States in the hands of a tiny elite. Here is a chart illustrating inequality in Russia.

You should take note about what this chart shows and doesn’t show. The ruling elite in the old Soviet Union didn’t have large incomes, and they didn’t live like American millionaires and billionaires, but they did have special privileges, much like military officers compared to the rank and file or like American corporate executives with huge expense accounts. They had special stories, special medical care, special schools for their children, etc.

Also, the chart indicates that relative equality isn’t everything. I don’t think many Americans would have wanted to trade places with the average person in the old Soviet Union.

There are two ways of looking at the $400,000 speaking fee that ex-President Barack Obama will receive from the Wall Street brokerage firm of Cantor Fitzgerald for speaking at a health care investment conference.

The other is that Obama is merely doing what all but one of the ex-Presidents from Gerald Ford onward have done, which is to use speaking fees cash in on his celebrity status.

Hillary and Bill Clinton’s speaking fees were a special case because Hillary Clinton was a future Presidential candidate. Hillary’s $675,000 in Goldman Sachs speaking fees could be interpreted as payments not only for services rendered, but for services anticipated. That suspicion was reinforced by Clinton’s refusal to release the texts of her talks.

I imagine that Barack Obama will have sense enough to watch his words enough to be able to release the text of his Cantor Fitzgerald talk without embarrassment.

Obama is not doing anything unusual. All but one of the Presidents from Gerald Ford through George W. Bush cashed in with big speaking fees after they left office.

This is the new normal. In this neoliberal age, an ex-President such as Harry Truman or Jimmy Carter who refused to monetize the office of the Presidency would seem quaint and strange.

American Airlines agreed this week to do something nice for its employees and arguably foresighted for its business by giving flight attendants and pilots a preemptive raise, in order to close a gap that had opened up between their compensation and the compensation paid by rival airlines Delta and United.

Wall Street freaked out, sending American shares plummeting. After all, this is capitalism and the capital owners are supposed to reap the rewards of business success.

“This is frustrating. Labor is being paid first again,” wrote Citi analyst Kevin Crissey in a widely circulated note. “Shareholders get leftovers.”

Indeed, major financial players were so outraged by American’s decision to pay higher wages that they punished airline stocks across the board. American itself took it hardest on the chin, of course, but the consensus among stock analysts was that higher pay at American could signal higher pay at other airlines too, with negative consequences for the overall industry.

In the opening of Kim Stanley Robinson’s new SF novel, New York 2140, two unemployed financial software engineers known as Mutt and Jeff—unemployed because they refuse to design a possibly illegal program for high-speed trading—contemplate a flooded lower Manhattan from atop the former Metropolitan Life building.

One of them says he has figured out what’s wrong with capitalism.

The basic problem with capitalism, he says, is that the forces of the market forces producers to sell products below cost.

This enables an individual enterprise to survive (sometimes), but, in the long run, leads human society into bankruptcy.

In the novel, global warming has taken place, sea levels have risen and lower Manhattan is under water. Skyscrapers such as the Met Life building are still survive amid a kind of new Venice. Uptown Manhattan is 50 feet higher in elevation, and is dry. In the middle is a tidal zone, where the poor and homeless congregate.

Some environmental problems have been solved, or at least are being coped with. Gasoline, jet fuel and other fossil fuels no longer exist. Air travel is by dirigible, ocean travel is by sailing ship and land vehicles are electric. But the financial structure and distribution of income are more or less like they are now.

New skyscrapers—”superscrapers”—in uptown are owned by the world’s wealthy elite, as investments or as one of multiple homes, and are often vacant.

A hurricane late in the novel leaves many homeless. They try to storm the vacant uptown towers, and are turned back by private security forces, who outgun the New York Police Department.

Rather than attempt a violent revolutionary overthrow, the common people attempt a political and economic jujitsu.

They join in a nationwide debt strike. On a given day, they stop paying their mortgages, student loans and credit card balances. The financial system is go highly leveraged with debt upon debt that it comes crashing down, just as in 2008. So the financiers go to Washington for another bailout, just as they did then.

But this time, the President and Federal Reserve Chairman, who are in on the plan, act differently. They tell the banks and investment companies that they would be bailed out only on one condition—that the government be given stock of equal value to the bailout, as was done in the bailout of General Motors. Those who refuse this deal are allowed to fail.

Now the federal government has the authority to force the banks to act as public utilities. And the huge profits that once flowed to the financial elite now flow to Washington, which makes it possible to adequately fund public education, infrastructure improvement, scientific research and all the other things the country needs.

And so the American people live happily—not ever after and not completely, but for a while.

What follows is notes for the first part of a talk for the Rochester Russell Forum scheduled at Writers & Books Literary Center, 740 University Ave., Rochester, NY, at 7 p.m. Thursday, April 13, 2017

Neoliberalism is the philosophy that economic freedom is the primary freedom, economic growth is the primary goal of society and the for-profit corporation is the ideal form of organization.

It is the justification for privatization, deregulation and the economic austerity currently being imposed on governments by lenders.

Neoliberalism has its roots in classical liberalism, which arose in the 18th and 19th centuries. Classic liberals said that the purpose of government is to protect human rights, including religious, intellectual, political and economic freedom. They fought the absolute power of kings and the privileges of aristocrats and demanded the right of individuals to determine their own fates.

Classical liberalism came to be supplanted in the early 20th century by a belief that government regulation and welfare could, if well thought out, enhance human freedom by giving individuals more choices. A graduate of a public school or university, for example, has more options than a person unable to afford an education, so taxing the public to pay for public schools and universities would be a form of liberation.

Neoliberalism is a backlash against social liberalism. Neoliberalism affirms that freedom of enterprise is the only important freedom. Its well-known adherents include Friedrich Hayek, Ludwig von Mises and Milton Friedman.

It came into widespread acceptance in the 1980s, as a reaction against the manifest failures of central economic planning and as a way to break the political gridlock of the welfare state. Ronald Reagan and Margaret Thatcher were both strongly influenced by the neoliberals.

Neoliberalism’s strongest adherents are to be found among economists, journalists, financiers, Silicon Valley executives and right-of-center parties in the English-speaking world and western Europe, and in international institutions such as the International Monetary Fund, World Bank and European Central Bank, which enforce neoliberal policies on debtor countries.

It is more of an implicit philosophy than a credo, a series of assumptions that has come to permeate our society.

What follows is my attempt to understand the logic behind these assumptions.

Andrew Keen’s book, The Internet Is Not The Answer (2015), which I recently finished reading, is a good antidote to cyber-utopians such as Kevin Kelly.

Keen says the Internet is shaping society in ways we the people don’t understand. Some of them are good, some of them are bad, but all are out of control.

Like Kelly, he writes about technology as if it were an autonomous force, shaped by its own internal dynamic rather than by human decisions. Unlike Kelly, he thinks this is a bad thing, not a good thing.

He does not, of course, deny that the Internet has made life easier in many ways, especially for writers. But that is not the whole story. He claims that—

What he doesn’t quite understand is that the “we” who shape the tools is not the same as the “us” who are shaped by them.

Or to use Marxist lingo, what matters is who owns the means of production.

Technology serves the needs and desires of those who own it. Technological advances generally serve the needs and desires of those who fund it.

Advances in technology that benefit the elite often serve the general good as well, but there is no economic or social law that guarantees this. This is as true of the Internet as it is of everything else.

Steve Bannon, the chief adviser to President Donald Trump, is probably the most influential person in the Trump administration besides Trump himself.

But I find it hard to get a handle on Bannon’s thinking, since he shuns the limelight, and hasn’t written any books or magazine articles I could get hold of,

His 2010 documentary film, Generation Zero, is probably as good a guide to his thinking as anything else.

It is well done and, despite being 90 minutes long, held my interest—at least until the last 10 minutes of so, which consists of restatements of the main points.

Generation Zero is an analysis of the roots and consequences of the 2008 financial crisis, which Bannon rightly blames on crony capitalism, the unholy alliance of Wall Street and Washington that began in the 1990s.

But if you look at the film’s action items, what he really does—knowingly or unknowingly—is to protect Wall Street by diverting the public’s attention from what’s really needed, which is criminal prosecution of financial fraud and the break-up of “too big to fail” institutions.

Bannon presents himself as an enemy of corrupt politicians and financiers. But there is nothing he advocates in the film or otherwise that threatens the power of either.

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Generation Zero draws on a book, The Fourth Turning by William Strauss and Neil Howe, who claim there is a cycle in American politics based on the succession of generations. Each cycle consists of four turnings—(1) a heroic response to a crisis, (2) a new cultural or religious awakening, (3) an unraveling and (4) a crisis.

Now Trump has put two former Goldman Sachs executives in charge of economic policy—Steve Mnuchin, former Goldman partner, as Secretary of the Treasury, and Gary Cohn, former president of Goldman, as his top economic adviser.

President Trump has put a portrait of Andrew Jackson, the great enemy of concentrated financial power, in his office. But his appointments show that he will be a champion of the moneyed establishment. Those who voted for him in hope he would be a friend to working people are going to be disappointed.

Some American hedge fund managers and Silicon Valley billionaires are preparing refuges so they have places to flee in the event of a revolution or economic collapse.

Evan Osnos, writing in the New Yorker, said they call this “apocalypse insurance.”

Reid Hoffman, the co-founder of LinkedIn and a prominent investor, recalls telling a friend that he was thinking of visiting New Zealand. “Oh, are you going to get apocalypse insurance?” the friend asked. “I’m, like, Huh?” Hoffman told me.

New Zealand, he discovered, is a favored refuge in the event of a cataclysm. Hoffman said, “Saying you’re ‘buying a house in New Zealand’ is kind of a wink, wink, say no more. Once you’ve done the Masonic handshake, they’ll be, like, ‘Oh, you know, I have a broker who sells old ICBM silos, and they’re nuclear-hardened, and they kind of look like they would be interesting to live in.’ ”

I asked Hoffman to estimate what share of fellow Silicon Valley billionaires have acquired some level of “apocalypse insurance,” in the form of a hideaway in the U.S. or abroad. “I would guess fifty-plus percent,” he said, “but that’s parallel with the decision to buy a vacation home. Human motivation is complex, and I think people can say, ‘I now have a safety blanket for this thing that scares me.’ ”

The fears vary, but many worry that, as artificial intelligence takes away a growing share of jobs, there will be a backlash against Silicon Valley, America’s second-highest concentration of wealth. (Southwestern Connecticut is first.)

“I’ve heard this theme from a bunch of people,” Hoffman said. “Is the country going to turn against the wealthy? Is it going to turn against technological innovation? Is it going to turn into civil disorder?”

Radicals propose a universal guaranteed income for all, regardless of whether you are gainfully employed or not. But as Matt Breunig pointed out, it already exists in the top 1 percent and 0.1 percent income bracket. They receive income from their financial assets regardless of whether they work or not.

There is a strong argument for a guaranteed. It is that the reason that the national wealth today is greater than in the past is largely due to the inventiveness and effort of our ancestors, not to anyone living today, and that therefore all of us are equally entitled to the fruits of their effort.

Grant that extreme economic inequality is a bad thing. Grant that ever-increasing economic inequality is a bad thing.

Grant that complete equality of incomes is not feasible and maybe not desirable. How much equality is enough?

The economist Friedrich Hayek wrote in The Road to Serfdom (as I recall) that it is impossible that people could reach a consensus on what each and every person deserves. Once you reject complete equality, he wrote, the only acceptable distribution of income is what results from the impersonal working of the free market.

A democratic government could never determine a distribution of income that is satisfactory to everyone, or even a majority, Hayek thought; if it tries, the result can only be gridlock and a breakdown of democracy.

But there are ways to reduce inequality that neither set limits on any individual’s aspirations nor give some group of bureaucrats the power to decide who gets what. Some that come to mind immediately are:

This chart from Vox shows how each $100 in Americans’ income was divided among the five main income groups in 2014, and how their shares have changed since 1989

It’s a bad thing when the rich get richer and the poor get poorer.

But suppose the rich got richer, but the poor didn’t get poorer. What would be wrong with that?

Is the problem with economic inequality in and of itself? Or would extreme differences between rich and poor be bad even if they poor did have enough—whatever your definition of “enough” happens to be.

New Dealers in the 1930s thought that increased incomes for the poor would be good for everybody, including the rich. If poor people had more money to spend, that would increase demand for goods and services, and get the economic going.

The U.S. Census Bureau reports that the four wealthiest counties in the USA—Loudon County, Falls Church City and Fairfax County, Virginia, and Howard County, Maryland—are all suburbs of Washington, D.C.

Nine of the 20 wealthiest counties—which also include Arlington County, Fairfax City and Prince William County, Virginia, and Calvert County and Montgomery County, Maryland—also are D.C. suburbs.

Only four of America’s wealthiest counties—Hunterdon County, Somerset County and Morris County, New Jersey and Nassau County, New York—are suburbs of New York City, the nation’s financial center and only three, Santa Clara County, San Mateo County and Marin County, California, are in or near Silicon Valley, the nation’s technology center. Make of that what you will.

The defeat of the odious Trans-Pacific Partnership agreement shows that the people can win against entrenched corporate and political power. The way the TPP was defeated shows how the people can win against entrenched power.

A couple of years ago, the passage of the odious Trans-Pacific Partnership agreement seemed inevitable.

Barack Obama, Hillary Clinton and Republican leaders in Congress, the U.S. Chamber of Commerce and most big newspapers and broadcasters were in favor of it. The public knew little about it because it was literally classified as secret. Congress passed fast-track authority, so that it could be pushed through without time for discussion.

It is in theory a free-trade agreement among the United States, Canada, Mexico, Australia, Japan and seven other countries. It is actually a corporate wish list in the form of international law, giving corporations new privileges in the form of patent and copyright protection and new powers to challenge environmental, health and labor laws and regulations.

I think there is a strong possibility that Donald Trump will be a one-term President—provided there are still free and fair elections in 2020.

I think that for the same reasons I thought Hillary Clinton might be a one-term President. I believe there will be another recession, as serious as the last, during the next four years, and I think Trump will be even less able to cope with it than Clinton.

He campaigned as a populist champion of the common people against the elite. But he spent his life among the elite, and his business history shows that he is only tough with those with less wealth and power than he has.

Trump kicks downward. He doesn’t punch upward.

His transition team is drawn from K street lobbyists. His preference is to appoint from the private sector, not from government or academia.

His likely choice for Secretary of the Treasury is Steven Mnuchin, his campaign finance chairman. Mnuchin is CEO of an investment firm called Dune Capital Management, but, according to POLITICO, he worked 17 years for Goldman Sachs, whose subprime mortgage manipulations were a big contributor to the last recession.

The problem is that, in a recession, what makes sense for a business owner doesn’t make sense for a President. A business owner’s instinct in tough times is to cut back. That is rational behavior for the individual, but cutting back means less money in circulation, less economic activity and a worse recession.

I don’t personally know many Donald Trump supporters. But I can understand why somebody might be so fed up with what’s happened during the past eight years or sixteen years or twenty-four years that they might turn to somebody such as Donald Trump.

People will overlook many faults in a leader if they think the leader is on their side. I think that’s why Trump’s offensive and foolish statements, which would have sunk any ordinary candidate, are overlooked.

Many people think—wrongly—that they have nothing to lose and might as well take a chance on Trump.

Unfortunately, Trump is not really on the side of working people, as is shown by his record in business, by the people on his political and economic team and by his economic policies (provided you read the fine print).

His economic advisers are mostly Wall Street investors and hedge fund managers—the type of people he’s denounced on the campaign trail.

And although his actual proposals contain a few things I agree with, it is basically the same old 30-year-old Republican formula—cut taxes (especially on the rich), cut government spending (except on the military) and eliminate regulations to protect workers, public health and the environment.

In a way, the enormous amounts of money that are spent in U.S. elections reflects the democratic nature of American institutions.

If the political process were controlled by a few party leaders, as during the Gilded Age of the late 19th century and other times in the past, it wouldn’t cost so much to control the process.

Many reforms were enacted in the 20th century to limit corporate power and make the government more democratic. The Tillman Act of 1907 forbid corporations to contribute to political candidates or elections. The Constitution was amended in 1913 so that Senators would be elected by the public instead of chosen by state legislators.

Over time limits were placed on campaign spending, and the Democratic and Republican parties began to nominate their candidates through primary elections rather than party conventions.

These reforms made possible the legislation of the Progressive era and the New Deal, which subjected corporations to unprecedentedly strict regulation and rich people to taxation at top rates reaching 90 percent, while providing Social Security, unemployment insurance and extensive public works.

Business leaders made a concerted and successful effort to turn things around. They altered the climate of opinion, both among educated people and the public. They supported candidates committed not only to the interests of particular businesses, but support of unrestricted capitalism in general.

And they worked through the courts, just as liberals had, to change the limits of what was legally permissible.

What follows is a (very incomplete) list of milestones in their progress, with an emphasis on the legal milestones.